ALISO VIEJO, Calif.--(BUSINESS WIRE)--
The New Home Company Inc. (NYSE: NWHM) today announced results for the
2018 fourth quarter and full year.

Fourth Quarter 2018 Financial Results

Net loss of $16.2 million, or $(0.80) per diluted share, including
$30.0 million of pretax inventory and joint venture impairment charges

Adjusted net income of $5.6 million*, or $0.28* per diluted share,
compared to $14.2 million*, or $0.67* per diluted share, for the 2017
fourth quarter

Total revenue of $229.7 million; home sales revenue of $187.3 million

Deliveries up 35% to 187

Backlog increased 25% to 191 units with total dollar value of $207.1
million

Ending community count up 18%

Repurchased 379,505 shares of common stock, or 2% of outstanding
shares for $2.8 million

Full Year 2018 Financial Results

Total revenue of $667.6 million; home sales revenue of $504.0 million

Net loss of $14.2 million, or $(0.69) per diluted share, including
$30.0 million of pretax inventory and joint venture impairment charges

Adjusted net income of $7.6 million*, or $0.37* per diluted share,
compared to $21.7 million*, or $1.03* per diluted share, for 2017

Deliveries up 46% to 498 for the full year

Net new home orders up 30%

Repurchased 1,003,116 shares of common stock, or 5% of outstanding
shares for $8.5 million

The Company reported a net loss of $16.2 million, or $(0.80) per diluted
share for the 2018 fourth quarter. Adjusted net income for the period
was $5.6 million*, or $0.28* per diluted share, after excluding $10.0
million in pretax inventory impairment charges and $20.0 million of
pretax joint venture impairment charges. The Company's net income for
the 2017 fourth quarter was $10.5 million, or $0.50 per diluted share.
Adjusted net income for the 2017 period was $14.2 million*, or $0.67*
per diluted share, and excluded $3.2 million in income tax charges
related to the revaluation of deferred tax assets and $0.9 million in
pretax inventory impairment charges.

“In 2018, we took another step forward in implementing our strategy to
reach more buyers through more affordably priced communities as
evidenced by a 46% increase in deliveries compared to 2017 and a 38%
reduction in the average selling price of homes delivered,” said Larry
Webb, Chairman and Chief Executive Officer of The New Home Company.
"However, the fourth quarter of 2018 proved to be a challenge as
potential buyers in our markets exercised a high degree of caution
during what is already a seasonally slow period, which resulted in a
slower absorption rate. In addition, we experienced some construction
delays at a few communities, most notably at our multifamily condominium
community in Playa Vista, which negatively impacted our fourth quarter
revenues. While we continue to have confidence in the fundamental
drivers of our business and strategy, we acknowledge the operational
challenges a slowing housing market poses and have adjusted our outlook
accordingly.”

Mr. Webb continued, “As a result of this revised outlook, we took
impairment charges at two higher-priced communities in Southern
California and one land development joint venture in Northern
California. We believe these actions were necessary in light of the
current demand environment and should allow us to turn through these
communities at a more accelerated rate, redeploy capital within our
existing or new markets and generate cash flow more quickly.”

Mr. Webb concluded. “We continue to be positive about the long-term
outlook for our markets and our company, and we are taking steps to
right-size our business and fortify our balance sheet. We anticipate
that these initiatives will lead to a leaner cost structure, reduce debt
leverage over time and improve shareholder returns."

Fourth Quarter 2018 Operating Results

Total revenues for the 2018 fourth quarter were $229.7 million, compared
to $324.1 million in the prior year period. Net loss attributable to the
Company was $16.2 million, or $(0.80) per diluted share, compared to net
income of $10.5 million, or $0.50 per diluted share, in the prior year
period. The year-over-year decrease in net income was primarily
attributable to a $29.1 million increase in inventory and joint venture
impairments, a 33% decrease in home sales revenue, a 770 basis point
decline in home sales gross margin percentage (270 basis point decline
before impairments*) and a 150 basis point increase in selling, general
and administrative costs as a percentage of home sales revenue. These
decreases were partially offset by a tax benefit for the 2018 fourth
quarter.

Wholly Owned Projects

Home sales revenue for the 2018 fourth quarter decreased 33% to $187.3
million, compared to $279.9 million in the prior year period. The
decrease in home sales revenue was driven largely by a 50% decline in
average selling price to $1.0 million, which was partially offset by a
35% increase in deliveries. Home sales revenue was also negatively
impacted by the delayed closing of several homes in backlog that were
scheduled to be delivered in the period. The decrease in average selling
price was most notable in Southern California where over half of our
deliveries were from more-affordable communities with base pricing of
$750,000 or below. In addition, the 2017 fourth quarter average selling
price was heavily influenced by deliveries from two Crystal Cove luxury
communities in Newport Coast, CA where average selling prices exceeded
$6.0 million.

Gross margin from home sales for the 2018 fourth quarter was 8.1% and
included $10.0 million in inventory impairment charges related to two
higher-priced communities in Southern California. Homes sales gross
margin for the 2017 fourth quarter was 15.8% and included inventory
impairment charges of $0.9 million. Excluding inventory impairments, our
home sales gross margin was 13.5%* for the 2018 fourth quarter as
compared to 16.2%* in the prior year period. The 270 basis point decline
was primarily due to higher interest costs included in cost of home
sales, and to a lesser extent, a product mix shift and slightly higher
incentives. Additionally, the 2017 fourth quarter also benefited from
an $0.8 million warranty reserve adjustment. Adjusted homebuilding gross
margin for the 2018 fourth quarter, which excludes interest in cost of
home sales and impairments, was 17.7%* compared to 18.0%* in the year
ago period.

Our SG&A expense ratio as a percentage of home sales revenue for the
2018 fourth quarter was 9.9% versus 8.4% in the prior year period. The
150 basis point increase in the SG&A rate was primarily due to lower
home sales revenue, higher co-broker commissions, and higher sales
personnel and advertising costs associated with increased community
count. Partially offsetting these year-over-year increases was decreased
capitalized selling and marketing cost amortization due to the closeout
of higher-end, luxury communities. G&A costs for the 2018 fourth quarter
were also lower as compared to the prior year period primarily due to
lower compensation-related expenses.

Net new home orders for the 2018 fourth quarter decreased 36% to 69
homes due to a slower monthly sales pace. We believe buyer hesitancy
stemming from higher interest rates and affordability concerns impacted
2018 fourth quarter demand with the monthly sales absorption rate
dropping to 1.2 sales per community compared to 2.3 for the year ago
period. The Company's active selling community count was up 18% as of
the end of the 2018 fourth quarter to 20 communities.

The dollar value of the Company's wholly owned backlog at the end of the
2018 fourth quarter was $207.1 million and totaled 191 homes compared to
$162.3 million and 153 homes in the prior year period. The increase in
backlog dollar value resulted primarily from the 25% increase in homes
in backlog, and to a lesser extent, a 2% higher average selling price.

Fee Building Projects

Fee building revenue for the 2018 fourth quarter was $42.4 million,
compared to $44.2 million in the prior year period. Management fees from
joint ventures and construction management fees from third parties
increased to $1.6 million for the 2018 fourth quarter as compared to
$1.2 million for the 2017 fourth quarter. We generated $1.1 million in
fee building gross margin for the 2018 fourth quarter versus $1.0
million in the prior year period. The higher fee building margin was
largely the result of increased construction management fees from third
parties, partially offset by a $0.3 million decrease in management fees
from joint ventures.

Unconsolidated Joint Ventures (JVs)

The Company’s share of joint venture loss for the 2018 fourth quarter
was $19.9 million, down from $0.3 million of income in the prior year
period. Included in the Company's loss was a $20.0 million impairment
charge related to our investment in a land development joint venture in
Northern California. The impairment was primarily the result of lower
anticipated land sales revenue as well as our decision to not
incorporate a potential homebuilding component within the existing land
development joint venture at this time. The following sets forth
supplemental information about the Company’s joint ventures. Such
information is not included in the Company’s financial data for GAAP
purposes but is provided for informational purposes.

Joint venture net loss totaled $28.3 million, compared to net income of
$0.6 million in the prior year period. Joint venture home sales revenue
for the 2018 fourth quarter totaled $52.8 million, compared to $38.1
million in the prior year period, while joint venture land sales revenue
totaled $7.5 million for the 2018 fourth quarter, compared to $1.7
million in the prior year period.

At the end of both the 2018 and 2017 fourth quarters, our joint ventures
had seven actively selling communities. Net new home orders from joint
ventures for the 2018 fourth quarter decreased 32% to 23 homes. The
dollar value of homes in backlog from joint ventures at the end of the
2018 fourth quarter was $66.9 million from 76 homes compared to $66.6
million from 80 homes at the end of the 2017 fourth quarter.

Income Taxes

The Company's effective tax rate was 27.8%, or 27.5%* before discrete
items, as compared to 51.7%, or 37.8%* before discrete items, in the
2017 fourth quarter. The effective tax rate for the 2017 fourth quarter
was impacted by a deferred tax asset charge, included in discrete items,
related to Federal tax rate cuts from 2017's Tax Cuts and Jobs Act. The
rate cuts were the primary driver of the year-over-year decrease in the
Company's effective tax rate before discrete items, partially offset by
the loss of certain tax benefits from production activities that were
eliminated as a result of tax reform.

Full Year 2018 Operating Results

For the full year 2018, the Company reported a net loss of $14.2
million, or $(0.69) per diluted share. Adjusted net income for the year
was $7.6 million*, or $0.37* per diluted share, after excluding $10.0
million in pretax inventory impairment charges and $20.0 million of
pretax joint venture impairment charges. The Company's net income for
2017 was $17.2 million, or $0.82 per diluted share. Adjusted net income
for 2017 was $21.7 million*, or $1.03* per diluted share, and excluded
$3.2 million in income tax charges related to the revaluation of
deferred tax assets and $2.2 million in pretax inventory impairment
charges.

Total revenues for the year ended December 31, 2018 were $667.6 million
compared to $751.2 million for the prior year. Homebuilding revenue
declined to $504.0 million primarily from a 38% decrease in the average
selling price of homes due to a strategic shift to more affordably
priced homes in 2018, partially offset by a 46% increase in the number
of homes delivered during the year. The year-over-year decrease in net
income was primarily attributable to a $27.8 million increase in
inventory and joint venture impairment charges, a 380 basis point
decline in home sales margin (220 basis point decline before
impairments*), an 11% decrease in total revenues, and a 180 basis point
increase in selling, general and administrative expenses as a percentage
of home sales revenue. These items were partially offset by the income
tax benefit for 2018.

Balance Sheet and Liquidity

As of December 31, 2018, the Company had real estate inventories
totaling $566.3 million and owned or controlled 2,812 lots through its
wholly owned operations (excluding fee building and joint venture lots),
of which 1,145 lots, or 41%, were controlled through option contracts.
The Company ended the 2018 fourth quarter with $42.3 million in cash and
cash equivalents and $387.6 million in debt, of which $67.5 million was
outstanding under its $200 million revolving credit facility. As of
December 31, 2018, the Company had a debt-to-capital ratio of 61.8% and
a net debt-to-capital ratio of 59.0%*.

Stock Repurchase

During the 2018 fourth quarter, the Company repurchased 379,505 shares
of common stock for approximately $2.8 million under its previously
announced stock repurchase plan. For the full year 2018, the Company
repurchased and retired 1,003,116 shares totaling $8.5 million, leaving
a remaining authorization of $6.5 million as of December 31, 2018.

Guidance

The Company's current estimate for the 2019 first quarter is as follows:

Home sales revenue of $80 - $90 million

Fee building revenue of $20 - $25 million

Home sales gross margin of 12.6% - 13.0%

Conference Call Details

The Company will host a conference call and webcast for investors and
other interested parties beginning at 11:00 a.m. Eastern Time on Friday,
February 15, 2019 to review fourth quarter and full year results,
discuss recent events and results, and discuss the Company's quarterly
guidance for 2019. We will also conduct a question-and-answer period.
The conference call will be available in the Investors section of the
Company’s website at www.NWHM.com.
To listen to the broadcast live, go to the site approximately 15 minutes
prior to the scheduled start time in order to register, download and
install any necessary audio software. To participate in the telephone
conference call, dial 1-877-407-0789 (domestic) or 1-201-689-8562
(international) at least five minutes prior to the start time. Replays
of the conference call will be available through March 15, 2019 and can
be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671
(international) and entering the pass code 13686678.

* Adjusted net income, Adjusted EPS, homebuilding (home sales) gross
margin before impairments, adjusted homebuilding gross margin (or
homebuilding gross margin excluding interest in cost of home sales and
impairments), effective tax rate before discrete items and net
debt-to-capital ratio are non-GAAP measures. A reconciliation of the
appropriate GAAP measure to each of these measures is included in the
accompanying financial data. See “Reconciliation of Non-GAAP Financial
Measures.”

About The New Home Company

NWHM is a new generation homebuilder focused on the design, construction
and sale of innovative and consumer-driven homes in major metropolitan
areas within select growth markets in California and Arizona, including
Southern California, the San Francisco Bay area, metro Sacramento and
the greater Phoenix area. The Company is headquartered in Aliso Viejo,
California. For more information about the Company and its new home
developments, please visit the Company's website at www.NWHM.com.

Forward-Looking Statements

Various statements contained in this press release, including those that
express a belief, anticipation, expectation or intention, as well as
those that are not statements of historical fact, are forward-looking
statements. These forward-looking statements may include projections and
estimates concerning our revenues, community counts and openings, the
timing and success of specific projects, our ability to execute our
strategic growth objectives, gross margins, other projected results,
income, earnings per share, joint ventures and capital spending. Our
forward-looking statements are generally accompanied by words such as
“estimate,” “should,” “project,” “predict,” “believe,” “expect,”
“intend,” “anticipate,” “potential,” “plan,” “goal,” “will,” “guidance,”
“target,” “forecast,” or other words that convey the uncertainty of
future events or outcomes. The forward-looking statements in this press
release speak only as of the date of this release, and we disclaim any
obligation to update these statements unless required by law, and we
caution you not to rely on them unduly. We have based these
forward-looking statements on our current expectations and assumptions
about future events. While our management considers these expectations
and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict
and many of which are beyond our control. The following factors, among
others, may cause our actual results, performance or achievements to
differ materially from any future results, performance or achievements
expressed or implied by these forward-looking statements: economic
changes either nationally or in the markets in which we operate,
including declines in employment, volatility of mortgage interest rates
and inflation; a downturn in the homebuilding industry; changes in sales
conditions, including home prices, in the markets where we build homes;
our significant amount of debt and the impact of restrictive covenants
in our debt agreements; our ability to repay our debt as it comes due;
changes in our credit rating or outlook; volatility and uncertainty in
the credit markets and broader financial markets; our business and
investment strategy including our plans to sell more affordably priced
homes; availability of land to acquire and our ability to acquire such
land on favorable terms or at all; our liquidity and availability, terms
and deployment of capital; changes in margin; write-downs; shortages of
or increased prices for labor, land or raw materials used in housing
construction; adverse weather conditions and natural disasters
(including wild fires and mudslides); issues concerning our joint
venture partnerships; the cost and availability of insurance and surety
bonds; governmental regulation, including the impact of "slow growth" or
similar initiatives; changes in, or the failure or inability to comply
with, governmental laws and regulations; the timing of receipt of
regulatory approvals and the opening of projects; delays in the land
entitlement process, development, construction, or the opening of new
home communities; litigation and warranty claims; the degree and nature
of competition; the impact of recent accounting standards; availability
of qualified personnel and our ability to retain our key personnel; and
additional factors discussed under the sections captioned “Risk Factors”
included in our annual report and other reports filed with the
Securities and Exchange Commission. The Company reserves the right to
make such updates from time to time by press release, periodic report or
other method of public disclosure without the need for specific
reference to this press release. No such update shall be deemed to
indicate that other statements not addressed by such update remain
correct or create an obligation to provide any other updates.

Common stock, $0.01 par value, 500,000,000 shares authorized,
20,058,904 and 20,876,837, shares issued and outstanding as of
December 31, 2018 and December 31, 2017, respectively

201

209

Additional paid-in capital

193,132

199,474

Retained earnings

46,621

64,307

Total stockholders' equity

239,954

263,990

Non-controlling interest in subsidiary

76

90

Total equity

240,030

264,080

Total liabilities and equity

$

696,097

$

644,512

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Year Ended

December 31,

2018

2017

(Dollars in thousands)

Operating activities:

Net income (loss)

$

(14,230

)

$

17,141

Adjustments to reconcile net income (loss) to net cash used in
operating activities:

Deferred taxes

(7,620

)

(1,073

)

Noncash deferred tax asset charge

—

3,190

Amortization of stock-based compensation

3,090

2,803

Distributions of earnings from unconsolidated joint ventures

715

1,588

Inventory impairments

10,000

2,200

Abandoned project costs

206

383

Equity in net income (loss) of unconsolidated joint ventures

19,653

(866

)

Deferred profit from unconsolidated joint ventures

136

821

Depreciation and amortization

6,631

449

Net changes in operating assets and liabilities:

Contracts and accounts receivable

4,959

4,670

Due from affiliates

(242

)

18

Real estate inventories

(157,705

)

(114,930

)

Other assets

(11,642

)

(5,255

)

Accounts payable

15,669

(9,546

)

Accrued expenses and other liabilities

(9,305

)

7,544

Net cash used in operating activities

(139,685

)

(90,863

)

Investing activities:

Purchases of property and equipment

(246

)

(195

)

Cash assumed from joint venture at consolidation

—

995

Contributions and advances to unconsolidated joint ventures

(15,066

)

(27,479

)

Distributions of capital and repayment of advances from
unconsolidated joint ventures

15,436

15,577

Interest collected on advances to unconsolidated joint ventures

178

552

Net cash provided by (used in) investing activities

302

(10,550

)

Financing activities:

Borrowings from credit facility

150,000

88,000

Repayments of credit facility

(82,500

)

(206,000

)

Proceeds from senior notes

—

324,465

Repayments of other notes payable

—

(4,110

)

Payment of debt issuance costs

—

(7,565

)

Repurchases of common stock

(8,563

)

—

Tax withholding paid on behalf of employees for stock awards

(982

)

(590

)

Proceeds from exercise of stock options

—

102

Net cash provided by financing activities

57,955

194,302

Net (decrease) increase in cash, cash equivalents and restricted cash

(81,428

)

92,889

Cash, cash equivalents and restricted cash – beginning of period

123,970

31,081

Cash, cash equivalents and restricted cash – end of period

$

42,542

$

123,970

KEY FINANCIAL AND OPERATING DATA

(Dollars in thousands)

(Unaudited)

New Home Deliveries:

Three Months Ended December 31,

2018

2017

% Change

Homes

DollarValue

AveragePrice

Homes

DollarValue

AveragePrice

Homes

DollarValue

AveragePrice

Southern California

102

$

113,283

$

1,111

86

$

242,955

$

2,825

19

%

(53

)%

(61

)%

Northern California

85

73,975

870

53

36,930

697

60

%

100

%

25

%

Total

187

$

187,258

$

1,001

139

$

279,885

$

2,014

35

%

(33

)%

(50

)%

Year Ended December 31,

2018

2017

% Change

Homes

DollarValue

AveragePrice

Homes

DollarValue

AveragePrice

Homes

DollarValue

AveragePrice

Southern California

282

$

317,373

$

1,125

174

$

433,651

$

2,492

62

%

(27

)%

(55

)%

Northern California

216

186,656

864

167

127,191

762

29

%

47

%

13

%

Total

498

$

504,029

$

1,012

341

$

560,842

$

1,645

46

%

(10

)%

(38

)%

Three Months Ended December 31,

Year Ended December 31,

2018

2017

%Change

2018

2017

%Change

Net New Home Orders:

Southern California

53

54

(2

)%

301

197

53

%

Northern California

13

53

(75

)%

202

215

(6

)%

Arizona

3

—

NA

33

—

NA

69

107

(36

)%

536

412

30

%

Selling Communities at End of Period:

Southern California

13

10

30

%

Northern California

5

7

(29

)%

Arizona

2

—

NA

20

17

18

%

Average Selling Communities:

Southern California

13

9

44

%

12

7

71

%

Northern California

5

7

(29

)%

6

6

—

%

Arizona

2

—

NA

2

—

NA

20

16

25

%

20

13

54

%

Monthly Sales Absorption Rate per Community (1):

Southern California

1.4

2.1

(33

)%

2.2

2.3

(4

)%

Northern California

0.9

2.5

(64

)%

2.7

3.1

(13

)%

Arizona

0.5

NA

NA

1.7

NA

NA

Total

1.2

2.3

(48

)%

2.3

2.7

(15

)%

Backlog:

As of December 31,

2018

2017

% Change

Homes

DollarValue

AveragePrice

Homes

DollarValue

AveragePrice

Homes

DollarValue

AveragePrice

Southern California

90

$

111,024

$

1,234

71

$

93,955

$

1,323

27

%

18

%

(7

)%

Northern California

68

59,847

880

82

68,295

833

(17

)%

(12

)%

6

%

Arizona

33

36,200

1,097

—

—

—

NA

NA

NA

Total

191

$

207,071

$

1,084

153

$

162,250

$

1,060

25

%

28

%

2

%

(1)

Monthly sales absorption represents the number of net new home
orders divided by the number of average selling communities for the
period.

Lots Owned and Controlled:

As of December 31,

2018

2017

%Change

Lots Owned

Southern California

626

563

11

%

Northern California

742

318

133

%

Arizona

299

65

360

%

Total

1,667

946

76

%

Lots Controlled (1)

Southern California

205

278

(26

)%

Northern California

451

1,031

(56

)%

Arizona

489

497

(2

)%

Total

1,145

1,806

(37

)%

Lots Owned and Controlled - Wholly Owned

2,812

2,752

2

%

Fee Building (2)

806

920

(12

)%

Total Lots Owned and Controlled

3,618

3,672

(1

)%

(1)

Includes lots that we control under purchase and sale agreements or
option agreements subject to customary conditions and have not yet
closed. There can be no assurance that such acquisitions will occur.

(2)

Lots owned by third party property owners for which we perform
construction services.

Other Financial Data:

Three Months Ended December 31,

Year EndedDecember 31,

2018

2017

2018

2017

Interest incurred

$

7,779

$

6,761

$

28,377

$

21,978

Adjusted EBITDA(1)

$

19,565

$

28,632

$

39,898

$

50,145

Adjusted EBITDA margin percentage (1)

8.5

%

8.8

%

6.0

%

6.7

%

LTM(2) Ended December 31,

2018

2017

Interest incurred

$

28,377

$

21,978

Adjusted EBITDA(1)

$

39,898

$

50,145

Adjusted EBITDA margin percentage (1)

6.0

%

6.7

%

Ratio of Adjusted EBITDA to total interest incurred(1)

1.4

x

2.3

x

December 31,

2018

2017

Ratio of debt-to-capital

61.8

%

54.7

%

Ratio of net debt-to-capital(1)

59.0

%

42.4

%

Ratio of debt to LTM(2) Adjusted EBITDA(1)

9.7

x

6.4

x

Ratio of net debt to LTM(2) Adjusted EBITDA(1)

8.6

x

3.9

x

Ratio of cash and inventory to debt

1.6

x

1.7

x

(1)

Adjusted EBITDA, Adjusted EBITDA margin percentage, ratio of
Adjusted EBITDA to total interest incurred, ratio of net
debt-to-capital, ratio of debt to LTM Adjusted EBITDA and ratio of
net debt to LTM Adjusted EBITDA are non-GAAP measures. Please see
"Reconciliation of Non-GAAP Financial Measures" for a reconciliation
of each of these measures to the appropriate GAAP measure.

(2)

"LTM" indicates amounts for the trailing 12 months.

KEY FINANCIAL AND OPERATING DATA - UNCONSOLIDATED JOINT VENTURES

(Dollars in thousands)

(Unaudited)

Three Months Ended December 31,

Year Ended December 31,

2018

2017

% Change

2018

2017

% Change

Financial Data - Unconsolidated Joint Ventures:

Home sales revenue

$

52,811

$

38,069

39

%

$

138,892

$

142,697

(3

)%

Land sales revenue

7,453

1,698

339

%

42,731

4,750

800

%

Total revenue

$

60,264

$

39,767

52

%

$

181,623

$

147,447

23

%

Net income (loss)

$

(28,253

)

$

563

NM

$

(27,904

)

$

(529

)

NM

Operating Data - Unconsolidated Joint Ventures:

New home orders

23

34

(32

)%

142

170

(16

)%

New homes delivered

54

34

59

%

146

149

(2

)%

Average selling price of homes delivered

$

978

$

1,120

(13

)%

$

951

$

958

(1

)%

Selling communities at end of period

7

7

—

%

Backlog homes (dollar value)

$

66,892

$

66,636

—

%

Backlog (homes)

76

80

(5

)%

Average sales price of backlog

$

880

$

833

6

%

Homebuilding lots owned and controlled

211

341

(38

)%

Land development lots owned and controlled

1,879

2,323

(19

)%

Total lots owned and controlled

2,090

2,664

(22

)%

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES(Unaudited)

In this earnings release, we utilize certain non-GAAP financial measures
as defined by the Securities and Exchange Commission. We present these
measures because we believe they, and similar measures, are useful to
management and investors in evaluating the Company’s operating
performance and financing structure. We also believe these measures
facilitate the comparison of our operating performance and financing
structure with other companies in our industry. Because these measures
are not calculated in accordance with Generally Accepted Accounting
Principles (“GAAP”), they may not be comparable to other similarly
titled measures of other companies and should not be considered in
isolation or as a substitute for, or superior to, financial measures
prepared in accordance with GAAP.

The following table reconciles net income (loss) attributable to the
Company to the non-GAAP measure of adjusted net income attributable to
the Company (net income before home sales and joint venture impairment
and noncash deferred tax asset charges) and earnings (loss) per share
and earnings (loss) per diluted share attributable to the Company to the
non-GAAP measures of adjusted earnings per share and adjusted diluted
earnings per share attributable to the Company (earnings per share
before home sales and joint venture impairment and noncash deferred tax
asset charges). We believe removing the impact of impairments and
deferred tax asset adjustments is relevant to provide investors with an
understanding of the impact these noncash items had on earnings.

Three Months EndedDecember 31,

Year Ended December 31,

2018

2017

2018

2017

(Dollars in thousands, except per share amounts)

Net income (loss) attributable to The New Home Company Inc.

$

(16,150

)

$

10,471

$

(14,216

)

$

17,152

Home sales and joint venture impairments (tax effected)

21,750

560

21,810

1,366

Noncash deferred tax asset charge

—

3,190

—

3,190

Adjusted net income attributable to The New Home Company Inc.

$

5,600

$

14,221

$

7,594

$

21,708

Earnings (loss) per share attributable to The New Home Company Inc.:

Basic

$

(0.80

)

$

0.50

$

(0.69

)

$

0.82

Diluted

$

(0.80

)

$

0.50

$

(0.69

)

$

0.82

Adjusted earnings per share attributable to The New Home Company
Inc.:

Basic

$

0.28

$

0.68

$

0.37

$

1.04

Diluted

$

0.28

$

0.67

$

0.37

$

1.03

Weighted average shares outstanding:

Basic

20,247,406

20,876,766

20,703,967

20,849,736

Diluted

20,326,250

21,145,065

20,804,859

20,995,498

Home sales and joint venture impairments

$

30,000

$

900

$

30,000

$

2,200

Effective tax rate for The New Home Company Inc. before discrete
items(1)

27.5

%

37.8

%

27.3

%

37.9

%

Tax benefit from home sales and joint venture impairments

$

(8,250

)

$

(340

)

$

(8,190

)

$

(834

)

Home sales and joint venture impairments (tax effected)

$

21,750

$

560

$

21,810

$

1,366

Loss per share attributable to The New Home Company Inc. related to
home sales and joint venture impairments:

Basic

$1.07

$0.03

$1.05

$0.07

Diluted

$1.07

$0.03

$1.05

$0.07

(1)

Refer to table below for reconciliation of the effective tax rate
before discrete items.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)(Unaudited)

The following table reconciles homebuilding gross margin percentage as
reported and prepared in accordance with GAAP to the non-GAAP measures,
homebuilding gross margin excluding interest in cost of home sales and
adjusted homebuilding gross margin. We believe this information is
meaningful, as it isolates the impact home sales impairments and
leverage have on homebuilding gross margin and provides investors better
comparisons with our competitors, who adjust gross margins in a similar
fashion.

Three Months Ended December 31,

Year Ended December 31,

2018

%

2017

%

2018

%

2017

%

(Dollars in thousands)

Home sales revenue

$

187,258

100.0

%

$

279,885

100.0

%

$

504,029

100.0

%

$

560,842

100.0

%

Cost of home sales

172,034

91.9

%

235,568

84.2

%

446,530

88.6

%

475,413

84.8

%

Homebuilding gross margin

15,224

8.1

%

44,317

15.8

%

57,499

11.4

%

85,429

15.2

%

Add: Homes sales impairments

10,000

5.4

%

900

0.3

%

10,000

2.0

%

2,200

0.4

%

Homebuilding gross margin before impairments

25,224

13.5

%

45,217

16.2

%

67,499

13.4

%

87,629

15.6

%

Add: Interest in cost of home sales

7,868

4.2

%

5,302

1.8

%

18,678

3.7

%

11,021

2.0

%

Adjusted homebuilding gross margin

$

33,092

17.7

%

$

50,519

18.0

%

$

86,177

17.1

%

$

98,650

17.6

%

The following table reconciles the Company’s effective tax rate
calculated in accordance with GAAP to the non-GAAP measure, effective
tax rate before discrete items. The Tax Cuts and Jobs Act enacted in
December 2017 cut Federal corporate income tax rates effective for 2018,
and we believe removing the impact of the discrete items is relevant to
provide investors with an understanding of the impact the tax cuts had
on earnings.

Three Months EndedDecember 31,

Year Ended December 31,

2018

2017

2018

2017

(Dollars in thousands)

Effective tax rate for The New Home Company Inc.:

Pretax income (loss)

$

(22,376

)

$

21,692

$

(20,305

)

$

32,531

(Provision) benefit for income taxes

$

6,226

$

(11,222

)

$

6,075

$

(15,390

)

Effective tax rate (1)

27.8

%

51.7

%

29.9

%

47.3

%

Effective tax rate for The New Home Company Inc. before discrete
items:

(Provision) benefit for income taxes

$

6,226

$

(11,222

)

$

6,075

$

(15,390

)

Adjustment for discrete items

(69

)

3,029

(523

)

3,068

(Provision) benefit for income taxes before discrete items

$

6,157

$

(8,193

)

$

5,552

$

(12,322

)

Effective tax rate for The New Home Company Inc. before discrete
items(1)

27.5

%

37.8

%

27.3

%

37.9

%

(1)

Effective tax rate is computed by dividing the (provision) benefit
for income taxes by pretax income (loss).

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)(Unaudited)

Adjusted EBITDA, Adjusted EBITDA margin percentage, the ratio of
Adjusted EBITDA to total interest incurred, the ratio of debt to
Adjusted EBITDA, and the ratio of net debt to Adjusted EBITDA are
non-GAAP measures. Adjusted EBITDA means net income (loss) (plus cash
distributions of income from unconsolidated joint ventures) before (a)
income taxes, (b) interest expense, (c) amortization of previously
capitalized interest included in cost of sales and equity in net income
(loss) of unconsolidated joint ventures, (d) noncash impairment charges
and abandoned project costs, (e) depreciation and amortization, (f)
amortization of stock-based compensation and (g) income (loss) from
unconsolidated joint ventures. Adjusted EBITDA margin percentage is
calculated by dividing Adjusted EBITDA by total revenue for a given
period. The ratio of Adjusted EBITDA to total interest incurred is
calculated by dividing Adjusted EBITDA by total interest incurred for a
given period. The ratio of debt to Adjusted EBITDA is calculated by
dividing debt at the period end by Adjusted EBITDA for a given period.
The ratio of net debt to Adjusted EBITDA is calculated by dividing debt
at the period end less cash, cash equivalents and restricted cash by
Adjusted EBITDA for a given period. Other companies may calculate
Adjusted EBITDA differently. Management believes that Adjusted EBITDA
assists investors in understanding and comparing the operating
characteristics of homebuilding activities by eliminating many of the
differences in companies' respective capitalization, interest costs, tax
position and level of impairments. Due to the significance of the GAAP
components excluded, Adjusted EBITDA should not be considered in
isolation or as an alternative to net income (loss), cash flows from
operations or any other performance measure prescribed by GAAP. A
reconciliation of net income (loss) to Adjusted EBITDA, and the
calculations of Adjusted EBITDA margin percentage, the ratio of Adjusted
EBITDA to total interest incurred, the ratio of debt to Adjusted EBITDA,
and the ratio of net debt to Adjusted EBITDA are provided in the
following table.

Three Months Ended

LTM(1) Ended

December 31,

December 31,

2018

2017

2018

2017

(Dollars in thousands)

Net income (loss)

$

(16,150

)

$

10,470

$

(14,230

)

$

17,141

Add:

Interest amortized to cost of sales and equity in net income (loss)
of unconsolidated joint ventures

9,016

5,333

19,908

11,057

(Benefit) provision for income taxes

(6,226

)

11,222

(6,075

)

15,390

Depreciation and amortization

2,134

105

6,631

449

Amortization of stock-based compensation

764

717

3,090

2,803

Cash distributions of income from unconsolidated joint ventures

—

—

715

1,588

Noncash inventory impairments and abandonments

10,125

1,045

10,206

2,583

Less:

Equity in net (income) loss of unconsolidated joint ventures

19,902

(260

)

19,653

(866

)

Adjusted EBITDA

$

19,565

$

28,632

$

39,898

$

50,145

Total Revenue

$

229,666

$

324,102

$

667,566

$

751,166

Adjusted EBITDA margin percentage

8.5

%

8.8

%

6.0

%

6.7

%

Interest incurred

$

7,779

$

6,761

$

28,377

$

21,978

Ratio of Adjusted EBITDA to total interest incurred

1.4

x

2.3

x

Total debt at period end

$

387,648

$

318,656

Ratio of debt to Adjusted EBITDA

9.7

x

6.4

x

Total net debt at period end

$

345,106

$

194,686

Ratio of netdebt to Adjusted EBITDA

8.6

x

3.9

x

Total cash and inventory

$

608,563

$

539,689

Ratio of cash and inventory to debt

1.6x

1.7

x

(1)

"LTM" indicates amounts for the trailing 12 months.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)(Unaudited)

The following table reconciles the Company’s ratio of debt-to-capital to
the non-GAAP ratio of net debt-to-capital. We believe that the ratio of
net debt-to-capital is a relevant financial measure for management and
investors to understand the leverage employed in our operations and as
an indicator of the Company’s ability to obtain financing.

December 31,

2018

2017

(Dollars in thousands)

Total debt, net

$

387,648

$

318,656

Equity, exclusive of non-controlling interest

239,954

263,990

Total capital

$

627,602

$

582,646

Ratio of debt-to-capital(1)

61.8

%

54.7

%

Total debt, net

$

387,648

$

318,656

Less: cash, cash equivalents and restricted cash

42,542

123,970

Net debt

345,106

194,686

Equity, exclusive of non-controlling interest

239,954

263,990

Total capital

$

585,060

$

458,676

Ratio of net debt-to-capital(2)

59.0

%

42.4

%

(1)

The ratio of debt-to-capital is computed as the quotient obtained by
dividing total debt, net by total capital (the sum of total debt,
net plus equity), exclusive of non-controlling interest.

(2)

The ratio of net debt-to-capital is computed as the quotient
obtained by dividing net debt (which is total debt, net less cash,
cash equivalents and restricted cash to the extent necessary to
reduce the debt balance to zero) by total capital, exclusive of
non-controlling interest. The most directly comparable GAAP
financial measure is the ratio of debt-to-capital. We believe the
ratio of net debt-to-capital is a relevant financial measure for
investors to understand the leverage employed in our operations and
as an indicator of our ability to obtain financing. We believe that
by deducting our cash from our debt, we provide a measure of our
indebtedness that takes into account our cash liquidity. We believe
this provides useful information as the ratio of debt-to-capital
does not take into account our liquidity and we believe that the
ratio net of cash provides supplemental information by which our
financial position may be considered. Investors may also find this
to be helpful when comparing our leverage to the leverage of our
competitors that present similar information.

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